Decreased discretionary spending hurts restaurants

By Buck Wargo

Friday, March 26, 2010 | 3 a.m.

The recession has taken a toll on a lot of retailers, many having closed their doors. Restaurants in Southern Nevada haven’t been immune and are going out of business in greater numbers.

Star Chef Charlie Trotter closed Restaurant Charlie and its C Bar at the Palazzo last week, an event that even made The New York Times blog on dining out.

The restaurant opened in 2008 and was well received, but high-end restaurants along the Strip have been hurt by tourists spending less money.

Off the Strip, many restaurants have closed as more locals either dine at less expensive restaurants or cook at home. Closures include Bonefish Grill and Rare in Henderson.

The downturn in spending on dining in Las Vegas is evident by taxable sales numbers, said Brian Gordon, a principal at Applied Analysis.

Sales at food service businesses and drinking places in 2009 were down 15 percent from 2007. They totaled $5.3 billion in 2009, compared with $6.2 billion in 2007 and $5.7 billion in 2008, he said.

“Consumers are spending less with consumption down significantly over the last two years, whether its retailers or restaurants,” Gordon said. “They are being more cautious of their discretionary spending, and certainly dining out is a key component of that.”

Gordon said many consumers have ratcheted down spending “at least one rung on the ladder.”

“I think people are looking for lower-cost alternatives, and I think people are consuming more food at home than they were before,” Gordon said. “We see that in the taxable sales.”

John Restrepo, principal of Restrepo Consulting Group, said people cut back on their discretionary spending on consumer items before cutting back on entertainment, which includes dining out.

“You still like to go out and blow off some steam, but they cut back by eating out less often or maybe share an entree so the dinner tab is lower,” Restrepo said. “They are not buying that bottle of wine. Instead of their tab being $150, it is $75.”

Over the past year, some Strip restaurants have closed one or two nights a week to save money, Restrepo said. The higher-end restaurants off the Strip tend to struggle more than casual dining places because locals have been hit hard by the recession, Restrepo said.

Those restaurants that were less capitalized face the most danger, Gordon said. Any decline in revenue requires cuts in expenses to maintain a profit, he said.

In closing Restaurant Charlie, the owners told the Times that they considered changes to keep it open, but didn’t want to compromise the integrity of its operations.

Restrepo said the lack of cash reserves has gotten restaurants in trouble because banks aren’t lending to help them get through the recession.

“A banker told me they are only willing to loan money to small businesses that have money and don’t need loans,” Restrepo said.

7-Eleven to add stores

The retailer announced it is partnering with NAI Corporate Real Estate Services to act as its agent for site selection, acquisition and disposition of real estate.

As part of its plan to add to its 160 stores in Clark County, the company will not only build stores but convert other franchise outlets into 7-Elevens. That means remodeling other operations.

NAI CRES in Salt Lake City has named Jeff Mitchell of Virtus Commercial as its Las Vegas representative.

Mitchell said 7-Eleven is in an unusual position among retailers because it is expanding. He said the company will pursue various formats such as pad sites, shopping center end caps, urban walk-up sites and nontraditional sites such as casinos, sports venues and airports.

Typical 7-Eleven stores measure 2,400 to 3,000 square feet.

Home Builder on challenges

Bill Hoover, immediate past president of the Southern Nevada Home Builders Association, said his industry will closely watch the 2011 Legislature on how it will affect his industry.

Hoover said for an industry struggling to rebound from the downturn in housing, any new taxes on builders will have serious consequences.

The industry is worried about efforts by local governments to push for “home rule” and give them more control over raising revenue, Hoover said. That means local taxes and impact fees that builders might have to pay for home construction, he said.

“There is a lot that is going to impact the cost of development and cost of housing,” Hoover said.

Local governments are updating building codes and that will affect the cost of housing, Hoover said.

The codes require a higher standard of upgrades to make homes more energy efficient. That baseline standard will cost more, he said.

Another concern is new fire codes projected to be in place in January that require fire sprinklers be installed in every new home, Hoover said. That would add $3,000 to $10,0000 to the home’s cost, he said.

“We have fought this for years and we are still working on (changing it), but as it stands right now in 10 months, there goes the cost of the house.”

In other news

• Wynn Las Vegas relaunched a boutique store for residential design. The store features designs from Wynn Design and Development Executive Vice President Roger Thomas.

• U.S. News & World Report published an article March 19 listing Las Vegas as the No. 1 underwater housing market in the nation. The article quoted Larry Murphy, the president of Las Vegas-based SalesTraq, a housing research firm, about the troubles of Las Vegas housing and steep price declines.